IBM's second quarter profit takes a hit

Thursday

Jul 18, 2013 at 2:00 AM

ARMONK — Massive layoffs in June hurt IBM's financial results for the second quarter, but eventually the job losses will help boost earnings, according to Big Blue Chief Financial Officer Mark Loughridge.

Jessica DiNapoli

ARMONK — Massive layoffs in June hurt IBM's financial results for the second quarter, but eventually the job losses will help boost earnings, according to Big Blue Chief Financial Officer Mark Loughridge.

IBM posted a profit of $3.2 billion in the second quarter, down 17 percent from the same time last year.

The company's June wave of layoffs cost $1 billion. The cuts will start to help results in the second half of this year and next year, Loughridge said in a conference call with investors and analysts Wednesday afternoon.

In June, IBM laid off more than 3,300 people in the United States, including 697 at Big Blue sites in Dutchess County, according to Alliance@IBM, an IBM employee organization.

IBM plans to add to earnings with a large, longer-term divestiture project. Loughridge indicated in the call that the company is no longer counting on a gain from the project in the second half of this year, and that the sale of the business division, which he did not identify, may happen in 2014.

On the conference call for first quarter results this spring, Loughridge declined to discuss rumors about the sale of IBM's x86 server business. The Wall Street Journal had reported that IBM was in advanced talks to sell the business to Lenovo Group, a Chinese computer company.

For the second quarter, Big Blue's earnings per share were $2.91, down 13 percent from last year. Still, the company expects to post operating earnings per share of $16.90 in 2013, excluding the $1 billion workforce rebalancing charges.

The company's revenue sunk 3 percent to $24.9 billion in the second quarter.

Revenue from System z mainframe server products, which are made in Poughkeepsie, increased 10 percent compared to the year-ago period.

Revenue from System x and Power systems both fell, according to a press release from IBM.

"While we had some improvements in Power and storage, they continue to decline," Loughridge said.

Revenue from the company's global business services division, which includes workers at IBM sites in Sterling Forest and Poughkeepsie, totaled $4.6 billion, down 1 percent for the quarter.

Loughridge said the company exited the second quarter stronger than it entered it. IBM had failed to close about $400 million in deals in the first quarter, but finalized a little less than half of those over the past three months, Loughridge said.

"That's the typical closure rate," he said, adding that the deals didn't cause a spike in the company's results.

IBM also finalized a "mega-outsourcing deal" that will transform technologies for that particular Big Blue client. The deal involves new analytics and cloud models, a direction IBM has increasingly been moving in. Cloud revenue was up by more than 70 percent in the first half of the year, according to an IBM press release.